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LeBlanc
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Issue 10 Winter 1999
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The Front Porch As we draw to the end of 1999, we must all look ahead to the year 2000. In addition to all the millenium hype that confronts us on a daily basis, we as an industry need to continue our commitment to find better and more effective ways to build, market and sell our homes for our ever changing market. Our regional and national conferences offer all of us a dynamic venue to update our knowledge and meet new industry associates. Top of page This coming January, NAHB's 56th annual Convention and Exposition will be an exciting gathering of our nation's best in the building industry. On Friday January 14th, there will be a sales rally and Bob Schultz will conduct a portion of that rally with participation by Patrick Holmes of Holmes & Associates, L.L.C. and myself. Bob's segment of the sales rally is his program "Plugging Your Silent Profit Leaks" and is scheduled for 9:00 AM. Bob's credentials in this industry need no introduction. We therefore thought this year end edition of The Home Front should offer a representation of what you will experience at the sales rally in Dallas. The Home Front: Bob, in any business, you must have a firm handle on income, expenses and profits. As your program title suggests, those profits can silently disappear. What are some of the areas in sales that need to be addressed by management when addressing the bottom line? Top of page Bob:
Actually there are 17 of them that we address in our program.
But of those 17, there are 3 or 4 that are the most critical
that lead to the eroding of margins. The first is measuring
realtor sales. As a quick example, if a builder is looking to
make a 15% margin, which would be a healthy margin, on a $200,00
house, the builder would effectively make a $30,000 profit.
If that sale includes an outside realtor, for lets say as much
as 3%, in this case would be $6,000. These realtor sales reduce
the profit by 20%. That is a big erosion. Management needs to
measure the percentage of realtor coops. If they are above 50%,
that ratio is too high. When managers attend our Builder University,
and state they want to learn how to do more realtor participation,
I immediately know I have someone who does not understand the
business side of this business. If their goal is more realtor
sales, they are not thinking in terms of increasing my bottom
line, but they are thinking in terms generating additional sales
that may not be profitable. You know that old joke in this business,
"We're losing money on every sale but we are starting to
make it up on volume." This By
the way, a back door sale is when the buyer purchases a home,
goes on contract and then a realtor contacts the builder agent
and says "Oh by the way. I was working with them. Where's
my 3%?" Many builders cave in and pay the realtor just
to keep them happy and keep the peace. If a builder would realize
that they just gave away 20% of their profit just to keep the
realtor happy, who is basically stealing from them, they would
have a different perspective on keeping someone happy. The message
I would suggest be conveyed to the realtor is the next time
you are working with someone, and you think they are going to
buy a home for us, bring them up to work A second issue is targeted compensation. This is a huge profit leak. If they don't have targeted compensation, the builder is simply paying the agent a percentage of the sales price. These builders think in terms of the real estate business and not in a retail business. This is not relative to profit or production to a certain number of units that are profitable. So what happens is a sales person can reach their personal financial comfort zone well in advance of the year or month the company reaches their financial comfort zone. For example, if a company has to do 48 sales a year to break even. Let's say the 49th or 50th home, the builder starts to make a profit. Let's assume the homes are selling at $200,000 and they are paying the agent a rate of 1.5%, which is fairly typical. 1.5% of $200,000 is $3,000. If an agent sells 4 homes per month, they would have made $12,000. $12,000 times 12 is $144,000 that is a financial comfort zone for most agents. The builder winds up with 48 sales. Not profitable. Where is the financial incentive for the sales agent? There is none. So targeted compensation means we start out with what do I have to sell to reach a minimal level of profitability and back the compensation on a unit basis and not a sales price. Sales beyond that point get significantly higher for that sales person. This is paying extraordinary money for extraordinary performance, not paying extraordinary money for ordinary performance. Most of the industry is doing it wrong. Builders who run their business based upon the industry standard and the way others do their business will lose money all the time. Agents start to confuse the size of their paycheck with their real talent, skills and abilities. The third one is not carefully measuring the gross sales price against the net sales price in those markets where negotiating is going on. So, when that happens, and it is not measured, the agent is reducing the price in the quest to make the sale. Managers need to know if an agent is making 6 sales a month and every one is a deal. I would rather have an agent make 4 sales per month and everyone is full price. Top of page The Home Front: You consistently state that builder's profit from the things they do between sales. Could you define some of these areas? Bob: One area is recruiting the right kind of agents. Management should hire agents on a stringent screening process of elimination rather than just hiring on a gut feeling or intuition basis. Otherwise you will not bring the right people on board. You will spend money to bring people in the door, they will not convert at the right ratios, and you will be losing sales. Another issue is not evaluating the agents on a consistent basis through several tactics. One being role-playing. If the agent will not role-play in front of their peers, they don't have skills. Confidence leads to confidence. If they know it, they can show it. Then there are the taped, audio and video, shopping evaluations. Top of page A third area is conversion ratios by different types of traffic generation. Measuring the traffic, measuring the sales, measuring the conversion ratios, measuring all of those things relative to the sales performance. A final area is measuring the sales not made. This is an important criteria for sales in the future. For example, if a buyer bought from a competitor, and I can find out why they bought there, that is valuable market research. The Home Front: You also state that if management does not properly measure and manage the sales process, you can not improve it. LeBlanc & Associates of course specializes in the measurement aspect of the sales process through our performance evaluation reports. Once management conducts a performance review of its sales team, what is the next step? Bob: I believe the evaluation, or any kind of performance review, whether it is an initial shopping or whether it is reviewing how the sales people do in a simulated role play, the first time we do that, simply establishes a benchmark. I don't really get concerned if a sales agent scores poorly on their first shop. The real critical issue is what do I, as management, do with the agent between the first shop, and the next one within another 30-45 days. What is the improvement from the first shop and the second one in 30-45 days? That is the critical measurement. I contend that anyone who does only one shop does not tell them very much. Top of page What good does it do if you are not measuring the improvement? I suggest must be done in groups of threes with no more than 60 days in between them. It is the difference between the first shop and the second, and the second and third shop, and by that, we are measuring both management and whoever the coach is, as well as the sales person. Would you have your financial auditor come in only once a year to look at your books? Does the builder inspector come around only once during the construction of a home? Shopping evaluations must be repetitive and be about measuring the improvement between them. It should not be punitive unless the third shop is not significantly better than the first or second one. Then it is time to have a serious conversation about somebody taking his or her excellence elsewhere. The Home Front: Patrick, you have also been involved in the measurement and management of the sales team. What issues are essential in the sales process from your perspective? Top of page PH: We have found that our best new home sales specialists follow Bob Schultz's "Sequence for Success." This system allows each of our agents to correctly and properly greet each customer, demonstrate the home, site select, and follow up efficiently. When this process is done correctly, then the sales process is a success. The Home Front: Patrick, the cost of sales can include many things. Of course, the sales agent's commission is one of those. Every builder has their own way of structuring the agents' compensation package. Some place agents on a base salary with a bonus system. Others use a draw against commission, etc. What type of compensation structure do you find most effective? PH: At Holmes Homes, we like to reward our agents for achieving sales success on a monthly basis. Goals are established each year with all sales associates, and then compensation is based upon the associate's ability to reach their monthly sales numbers. The Home Front: How does management handle the "I am worth more than you're offering" sales agent? Top of page PH: If management and the sales professional are really not on the same team, then a productive relationship will never foster. We have always felt that both parties need to be successful in order for relationships to grow. Both parties need to be fully aware of what each individual brings to the table. Once both sides understand this concept, the attitude "I am worth more than you're offering" seems to disappear. The Home Front: This question is for each of you. Those of us who assess and train agents always impart how the sale is a process not a singular event. LeBlanc & Associates always looks for how the sales agent creates the sale. That is do they establish rapport; do they utilize discovery questions to learn something about their prospective buyer; do they listen; etc. What do each of you look for in a sales presentation? Bob: Very much all of those things. I essentially say that a sales presentation must have a beginning, middle and an end. There has to be a purpose in mind. It must be conversational but it needs to be proactive. I find way too many new home sales presentations are totally reactive on the part of the sales person. The sales person is reacting to whatever the customer says. What ever the customer says is the point of beginning and the point of end relative to the process. I consider the extraordinary sales agent has an organized and planned presentation of which they control the process, but at all times it is conversational and buyer friendly, and where the buyer participates in that process. Sales people do not get the customer involved. Agents need to do more asking than telling so they can do more listening than talking. What happens is they just information dump. And as words come out of their mouth, they are consciously thinking about what they are going to say next. Because they have never mastered a presentation process, that could effectively give in their sleep. Top of page Most sales people do not want to do that. Most other sales professionals in other industries have a planned presentation. That is the difference between being a sales professional and being an allower. I think in our business today, in new home sales, because the market is so good, we have a lot of what I call allowers or accidental sales people. They allow sales to happen that are going to happen anyway. They can not tell you how they made the sale or what they did. Success in the absence of a process could very well mean we simply got lucky. I was in the right place, with the right builder, in the right time, with right product, with the right advertising, with right models, with the right buyer, and I don't have a clue how I did it. I can not replicate it at will because in the absence of a process, there is nothing to replicate. If I am a sales manager without a process, how can I teach sales people that which I don't know? PH: Again, this takes us back to the "Sequence for Success" formula. Once the agent masters this process, then sales are the result. Top of page The Home Front: Finally, again for each of you. I have always been taught that while working hard is to be expected, working smart is better. How can working smart benefit not only the agent, but the builder as well? Bob: That is a great question. I suggest that most sales people do not look at what they do relative to the return on investment (ROI). There are only 4 activities that an agent can engage in to make money for themselves and for the builders. Activity #1 is talking face to face with someone who is there expressing an interest in buying a home. This is the presentation. It is not the number of hours that they put into the presentation, but what they put into those hours that matter. The second most important activity is follow-up. Doing whatever they have to do to get the people back a second time. The third activity is prospecting. Calling upon realtors, calling upon past buyers, etc. The fourth activity is paperwork, handholding, option coordination, etc. The greatest opportunity a sales person has to leverage their time and work smarter, is one good salesperson with one good assistant who is properly trained, will outsell two new home sales people over time who do not have an assistant. The assistant will be trained to handle the busy work (the $10-$12 an hour activity) in stead of taking time away from the sales agent for prospecting and follow up to generate more sales. Top of page Additionally, an assistant or associate allows the agent to take the customer to a homesite on the weekends, our busiest times. The sales agent does not make any money on the weekend re-bonding with a customer who has already bought one of their homes. If I can have my associate or assistant re-bond with that customer ($10-12 and hour), while I am out talking with someone who has not bought a home yet ($1500 an hour) then that is working smart not hard. Too many agents are working hard doing all this stuff but they are not working smart. They have not identified the value of their time. They have not identified the activities that give them the highest investment return on their time. They have not learned to discipline themselves to do the most productive things first. That is working smart. PH: When both the agent and the builder truly feel like they are joint venture partners really working together in a partnership, then both parties benefit. Both the agent and the builder win when this type of work relationship is achieved. The
Home Front: My thanks to each of you for participating in this
year's
Who's Minding The Store? A recent area of concern is how the buyer is being treated by a builder's many vendors. Once the difficulty of the sale is overcome, the challenge of buyer selections begins. So now you send them off to the design center people, the landscape company, the lighting fixture company, etc. How
sure are you that this process doesn't undermine your sale?
Perception Is Everything Although two competing candy shops had the same prices, neighborhood kids preferred one store over the other. When asked why, the kids said, "Because the 'good' store always gives more candy. The girl in the other store takes candy away." True? Not really. In the "good" store, the owner would make sure to put a small amount of candy on the scale, then kept adding to it. In the "bad" store, the owner would pile a heaping amount of candy on the scale, and then take it off until it hit the right weight. The same amount of candy was sold, but perception is everything. How
do prospective buyers perceive your homes? Are they the "good"
homes or the "bad" homes? LeBlanc & Associates
can conduct Exit Surveys at your communities to determine how
prospective buyers perceive your homes. Give us a call! What is a picture worth? Many companies have been requesting a series of video shops for their sales teams. LeBlanc & Associates now provides this valuable service. Through a full video presentation, we take the denial aspect out of the evaluation process. Give us a call! This site designed and hosted by Expedionet,
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